Career Progression and Formal versus on the Job Training

This paper evaluates the return to formal education over the life-cycle and compare it to informal, on the job training. More specifically, we assess the apprenticeship system in Germany by comparing the long run value of education choices and subsequent labor market outcomes for apprentices and non-apprentices. We develop a structural model of career progression and educational choice, allowing for unobserved ability, endogenous job to job transition, specific firm-worker matches, specific returns to tenure and to general experience. We estimate this model on a large panel data set which describes the career progression of young Germans. We find that formal education is more important than informal training, even when taking into account for the possible selection into education. We use the estimated model to evaluate the long-run impact of labor market policies on educational choices and career progression. We find that policies such as the Earned Income Tax Credit which subsidize low wage have a detrimental effect on the probability of further education and on job mobility.